Korea Trade Review (무역학회지)

Korea Trade Research Association (한국무역학회)
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Intermediate Goods Trade and Properties of Business Cycle

중간재 무역과 경기변동 특성에 관한 연구

  • Received : 2021.09.30
  • Accepted : 2021.10.28
  • Published : 2021.10.30
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Abstract

This study aims to examine the effects of international trade in intermediate input on the implications of international business cycle properties in Korea. To do this, I have extended standard one goods New Keynesian international business cycle model to incorporate the role of intermediate inputs. After constructing the DSGE model, I have analysed the impulse response function and varian decomposition results. The results show that the model could introduce a new channel, that is, "cost channel" like Eyquem and Kamber (2014). In other words, the model has changed the dynamics of aggregate inflation by the cost channel. When the trade in intermediate goods increase, which is measured by openness of foreign input, the volatility of output, consumption and inflation increase two or three times. However, the model itself fails to explain the full account of cycle behavior of historical data, but the results imply that the trade in intermediate input assumption can help to improve the forecasting ability of international business cycle models.

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References

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